Facebook is considering two proposals to overhaul its network infrastructure. They have received two bids. The...
Facebook is considering two proposals to overhaul its network infrastructure. They have received two bids. The first bid from Huawei will require a $20 million upfront investment and will generate $20 million in savings for Facebook each year for the next 3 years. The second bid from Cisco requires a $100 million upfront investment and will generate $60 million in savings each year for the next 3 years.
a. What is the IRR for Facebook associated with each bid?
b. If the cost of capital for each investment is 12%, what is the net present value (NPV) for Facebook of each bid?
Suppose Cisco modifies its bid by offering a lease contract instead. Under the terms of the lease, Facebook will pay $20 million upfront, and $35 million per year for the next 3 years. Facebook's savings will be the same as with Cisco's original bid.
c. Including its savings, what are Facebook's net cash flow under the lease contract? What is the IRR of the Cisco bid now?
d. Is this new bid a better deal for Facebook than Cisco's original bid? Explain.
Homework Answers
d. the new bid is better than earlier bid cause its IRR is greater than IRR of earlier cisco bid
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Facebook is considering two proposals to overhaul its network
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my question is Q19, cost cutting proposals, thank you so much ! valent awwali wafer willing...
my question is Q19, cost cutting proposals, thank you so much
!
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considering three investment proposals. Each of them is
characterized by an initial cost, annual savings over four years,
and no salvage value, as illustrated in the following table. KW can
only invest in amaximum of two of these proposals. If theMARR is 12
percent, which proposal(s)should bechosenbased on an IRR
analysis?
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my question is Q19, cost cutting proposals, thank you so much
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